BWX Ltd (ASX: BWX) burst onto the scene in late 2015 after its founding shareholders sold-down their stake in the vertically integrated body, hair, and skincare company via an initial public offering on the ASX.
The company, which listed at a market capitalisation of approximately $139 million (based on the issue price of $1.50 per share), has grown from strength-to-strength to become a whopping $490 million juggernaut taking the organic skincare industry by storm.
With management recently completing BWX's acquisition of United States-based Mineral Fusion, I thought it was worth taking a closer look at the owner of Australia's leading organic skincare brand.
About BWX
Investors may be forgiven for never having heard of BWX before.
BWX is a holding company that distributes skin, hair, and body care brands into various pharmacies like Australian Pharmaceutical Industries Ltd (ASX: API) owned Priceline stores.
BWX's brand portfolio consists of DermaSkin, Uspa, Edward Beale, Renew Skincare, and Sukin – the number one organic skincare brand in Australia and BWX's largest revenue generator.
Financial health
In its first-half of 2017, BWX reported that revenues from Sukin increased 59.4% (compared to the prior corresponding period) in accounting for almost 83% of total group sales. This allowed the company to report net profit after tax growth of 30.2% to $8.2 million and increased gross margins of 65.1%.
Impressively, BWX ended the first-half with no debt and cash on hand of approximately $0.2 million. A solid result all-round.
Mineral Fusion acquisition
To date, BWX has been predominantly focused on Australia, with approximately 81.3% of group revenues being derived in Australia (as at 31 December 2016). However, BWX's recent acquisition of the number one selling natural cosmetics brand in America – Mineral Fusion – is likely to change this fact quickly.
Mineral Fusion is currently the leading natural cosmetics brand in America with forecast 2017 sales of approximately US$24 million and forecast full-year standalone earnings (EBITDA) in the range of US$3 to US$4 million.
Based on these forecasets, though the US$38.4 million (plus potential earn out of US$4.6 million) purchase price seems steep for this business, management's rationale to acquire the brand makes strategic sense in my opinion. This is because BWX will utilise Mineral Fusion's distribution network in the United States to penetrate the market with its leading Sukin brand. It is also likely to bring the Mineral Fusion brand to Australia and expand its local natural skincare portfolio. This should materially grow earnings over the medium-term.
Foolish takeaway
Although the Mineral Fusion acquisition and expansion poses its own risks, given both brands' success in their respective markets and the growing demand for natural skincare products globally, the strategy should reap rewards for shareholders over the long-term.
Nevertheless, whilst I am optimistic about the long-term future of BWX, I believe the current share price of $5.30 (at Wednesday's close) leaves little room for error. Accordingly, I think its one stock to add to your watch list for now and buy on any pullback.
